3?  sn 


GIFT  OF 


\ 


WHO  SHALL  CONTROL 

OUR  FINANCIAL 

DESTINY? 


THREE  POSSIBILITIES: 

Government  Ownership 

Government  Control 

Banking  Control 


ADDRESS     DELIVERED     BEFORE    THE 

FINANCE  FORUM  OF  NEW  YORK  CITY 

ON  DECEMBER  18,   1912 

BY 

JOHN  HARSEN  RHOADES 

OF 

RHOADES  &  COMPANY,  Bankers,  45  Wall  Street, 
New  York,  and  Chairman  of  the  Committee  on  Edu- 
cation of  the  New  York  State  Bankers'  Association 


Who  Shall  Control  Our  Financial 
Destiny? 


About  two  years  ago — the  date  is  immaterial — I  was  dis- 
cussing  banking   and   currency    reform    with   a   leading  Wall 
Street  banker.     If  I  mentioned  his  name,  you  would  recognize 
him  at  once  as  a  man  of  influence  and  ability.     I  said  to  him, 
"Why  doesn't  your  firm  take  more  interest  in  banking  and  cur- 
rency reform?     If  we  are  to  have  real  reform,  you  know  as 
well  as  I  that  it  is  the  big  able  man  who  must  put  his  shoulder 
to  the  wheel."     He  replied,  "Are  you  aware  that  a  partner  in 
our  firm  has  given  many  hours  of  his  valuable  time  to  licking 
the  Aldrich  plan  into  practical  shape?"    I  was  surprised  at  his 
words,  for  at  that  time — two  years  ago — I  had  no  idea  that 
such  was  the  case,  and  said,  "If  what  you  tell  me  is  so,  why  has 
he  so  effectively  concealed  the  fact?"    His  answer  was  signifi- 
cant, even  typical  of  the  times:  "Why,  man  alive,  don't  you 
know  that  if  the  country  were  aware  that  a  partner  in  this  firm 
was  even  interested  in  the  Aldrich  plan,  that  plan  would  be 
doomed?" 

Now  I  believe  that  in  estimating  the  people's  verdict  my 
friend  was  mistaken.  Every  man  no  matter  what  his  own  status 
may  be,  demands  from  others  the  truth.  He  was  reading  into 
the  minds  of  the  people  a  suspicion  which  could  not  exist  unless 
fostered  by  secrecy.  It  is  secrecy  that  breeds  the  germs  of 
suspicion,  and  it  is  suspicion  that  undermines  our  reasoning 
powers  and  makes  us  see  things  which  do  not  exist.  I  believe 
that  if  a  partner  of  that  influential  house  had  gone  to  the 
bankers'  convention  at  Los  Angeles,  had  struck  out  from 
the  shoulder,  and  said  to  those  men  assembled  from  all  parts 
of  the  Union — "Gentlemen,  I  am  from  Wall  Street.  I  am 
sincerely  interested  in  banking  reform,  and  have  given  much 
thought  to  the  subject.  I  am  here  to  help  and  to  be  helped. 
Do  you  care  to  hear  me  or  do  you  not?"  Gentlemen  of  the 
Finance  Forum,  I  believe  if  that  question  had  been  put  at 
that  time  by  a  man  I  have  in  mind,  banking  reform  would  no 
longer  be  a  dream  but  a  reality. 

I  do  not  wish  to  be  misinterpreted.  It  is  not  for  me  to 
dictate  to  any  man  a  course  of  procedure.  I  merely  tell  the 
story  to  impress  upon  you  the  misunderstandings  which  must 
be  overcome  before  banking  reform  is  an  accomplished  fact. 

257209 


Now,  I  went  to  Los  Angeles.  I  saw  able  bankers  from  Chicago, 
able  bankers  from  St.  Louis,  New  Orleans,  Cleveland,  able 
bankers  from  all  parts  of  the  country.  I  heard  them  speak.  I 
saw  them  mingle  with  the  crowd.  But  I  neither  saw  nor  heard 
the  shrewdest  of  them  all,  the  bigger  men  of  Wall  Street. 

Real  banking  reform  will  be  a  vision  until  the  brainy 
banker  of  the  East  and  the  brainy  banker  of  the  West  co- 
operate; nay,  until  the  men  of  the  North,  East,  South  and 
West  confer  with  one  another,  learn  one  another's  views  and 
trust  one  another's  motives.  I  wish  to  impress  upon  those  who 
hear  me,  and  upon  those  who  do  me  the  courtesy  to  read  what 
I  have  to  say,  that  I  am  a  Wall  Street  man.  I  wish  them  to 
understand  who  I  am  and  where  I  come  from,  I  want  them 
to  do  me  the  honor  to  believe  that  my  motives  are  disinterested. 
I  want  them  to  know  that  when  I  ask  for  the  brainy  man  of 
Wall  Street  to  join  us  in  this  great  reform,  it  is  because  we 
need  him.  Wall  Street  is  not  so  filthy  as  some  would  think. 
Selfish  men  are  there,  yes,  and  everywhere,  cold,  calculating, 
hard-headed  money  makers,  if  you  will,  but  not  necessarily 
thieves  at  all. 

Let  me  tell  you  another  story :  Just  previous  to  the  panic 
of  1907  my  firm,  a  borrower  of  money  from  a  large  trust  com- 
pany, was  informed  that  the  rate  on  the  loan  had  been  raised 
to  50  per  cent.  The  collateral  consisted  of  gilt  edged  bonds, 
and  the  loan  had  been  standing  for  some  time.  Knowing  one  of 
its  officers — as  a  matter  of  fact — a  personal  friend,  I  called 
upon  him,  and  among  other  things  said:  "Is  not  my  credit 
sufficiently  good  to  warrant  a  lower  rate  than  50  per  cent.? 
You  are  a  lender  of  money  with  a  service  to  perform.  Do  you 
think  it  just  to  bleed  me?"  He  replied,  "I  agree  that  such 
rates  seem  extortionate;  but  we  are  not  facing  a  theory  but  a 
condition,  and  it  is  the  duty  of  an  officer  of  this  company  to  its 
stockholders  to  take  advantage  of  every  opening  that  presents 
itself."  Now,  gentlemen,  from  his  standpoint  he  was  not  dis- 
honest, nor  was  he  doing  wrong.  He  was  merely  taking  ad- 
vantage of  his  opportunities.  The  fault  lies  where?  Not  with 
him,  but  with  his  conception  of  his  duty  to  his  stockholders 
versus  service  to  the  public  and  with  a  banking  system  that  in- 
vited him  to  do  as  he  did.  I  do  not  blame  him,  but  you  do. 
But  are  you  not  equally  culpable  in  maintaining  a  financial 
system  which  furnishes  him  with  these  opportunities? 

It  was  not  until  the  panic  of  1893  that  we  American  people 
as  a  whole  began  to  appreciate  the  weaknesses  in  our  financial 
structure.  We  then  gave  thought  to  the  subject,  but  we  ac- 

—  2  — 


complished  little  until  after  the  crisis  of  1907.  Since  that  date 
so  much  progress  has  been  made  that  there  has  now  been 
presented  to  the  American  people  a  well  rounded  plan  of 
monetary  reform,  commonly  known  as  the  Aldrich  plan,  which 
calls  for  the  establishment  of  a  National  Reserve  or  central 
reservoir  for  the  bank  reserves  of  the  country.  The  completed 
scheme,  however,  bears  little  of  the  ear-marks  of  Senator  Aid- 
rich's  work.  I  shall,  nevertheless,  at  the  outset  call  the  scheme 
the  Aldrich  plan,  if  for  no  other  reason  than  to  show  my  re- 
spect for  the  man  who  fathered  it.  If  there  be  those  who  can,  I 
for  one  cannot  be  so  small  and  narrow  as  to  reject  his  or  any 
other  man's  plan  because  the  personality  of  the  author  may 
not  be  to  my  or  someone  else's  liking. 

Gentlemen,  where  are  we  at?  There  should  be  peace  in 
the  financial  world,  not  distrust  and  bitterness.  It  is  asserted 
that  we  need  and  must  have  the  suffering  and  the  lesson  of 
another  panic — a  mean  and  cruel  thought.  It's  claimed  that 
we  cannot  have  the  National  Reserve  because  Mr.  Aldrich's 
name  is  attached.  It's  said  that  we  cannot  have  it  if  it  be 
known  that  a  Wall  Street  man  has  had  a  hand  in  preparing  it. 
Such  thoughts  are  childish  and  unworthy  of  men.  What  dif- 
ference does  it  make  who  the  author  may  be?  What  difference 
does  it  make  whether  he  be  black  or  white,  tall  or  short,  suave 
or  blunt,  sincere  or  insincere — if  the  plan  he  proposes  commends 
itself  to  our  good  sense?  Put  on  your  thinking  caps,  my 
friends,  and  think.  It's  the  meat  on  the  platter  that  must  be 
digested,  not  the  man  who  prepared  it;  it's  the  thought  in 
an  argument  that  must  be  considered,  not  the  man  who  ad- 
vanced it. 

I  have  spoken  thus  warmly  because  I  wish  you  to  see  things 
as  they  are,  not  as  some  would  paint  them.  Sometimes  it 
seems  as  if  the  nation  were  honeycombed  with  mean,  suspicious 
thoughts.  A  man  can  scarcely  rise  to  speak  before  another 
charge  a  false  and  ugly  motive.  He  who  tries  to  end  an  evil 
should  be  helped,  not  handicapped  by  base  and  mean  insinua- 
tions. We  should  think  and  think  fairly — not  jump  to  our 
conclusions. 

The  Aldrich  plan,  as  revised,  was  endorsed  by  our  Ameri- 
can bankers  at  their  convention  at  New  Orleans  subsequent  to 
its  approval  by  many  state  organizations.  It  would  seem,  how- 
ever, that  for  one  reason  or  another  the  scheme  has  not  met 
with  popular  approval,  yet  it  contains  much  of  merit.  It  would 
be  a  grave  misfortune  if,  after  the  sacrifice  of  so  much  time 
and  thought,  we  should  feel  compelled  to  discard  it  as  a  whole. 


I  am  one  of  those  bankers  who  are  positive  that  in  centralized 
power  lies  the  true  solution  of  our  financial  difficulties,  I  care 
not  whether  it  be  the  Aldrich  plan  or  any  other  plan ;  but  when 
I  say  centralized  power  I  mean  centralized  power,  no  chicken- 
hearted  compromise.  Therefore  I  am  the  more  unwilling  to 
throw  the  plan  aside.  My  purpose  this  evening  is  to  suggest 
an  amendment,  with  the  earnest  desire  that  interest  in  the  pro- 
ject be  revived  and  the  more  conspicuous  flaws  eliminated. 

I  ask  that  you  take  with  me  the  preliminary  step  of  divid- 
ing the  plan  into  two  sections.  That  section  which  deals  with 
the  functions  and  operative  processes  of  the  National  Reserve 
we  shall  not  discuss.  For  that  matter  it  is  impossible  in  ad- 
vance to  lay  out  a  hard  and  fast  working  formula;  but  the 
second  section,  constituting  the  basis  of  this  address,  and  deal- 
ing with  the  method  of  election  of  the  various  boards,  seriously 
invites  the  attention  of  the  American  people.  It  is  a  subject 
upon  which  we  must  train  the  available  intellect  of  the  country, 
for  it  is  one  which  concerns  not  alone  the  bankers  but  the 
people  as  a  whole.  Upon  it  every  American  citizen  has  the 
right  to  speak,  and  to  expect  our  national  schoolmaster,  the 
newspaper,  to  assist  him  in  forming  an  honest  opinion,  and  if 
he  speak  the  truth  to  spread  that  truth  among  the  people. 
Because  the  exponent  of  a  plan  is  unknown  or  unpopular, 
should  not  mean  that  his  argument  is  unworthy  of  your  con- 
sideration. I  repeat  my  metaphor.  It  is  the  meat  in  an  argu- 
ment that  must  be  digested,  not  the  man  who  prepared  it. 

As  you  know,  under  the  Aldrich  plan,  in  order  to  secure 
centralized  control  of  the  bank  reserves  of  the  country,  there 
are  to  be  scattered  throughout  the  nation  clusters  of  local 
associations  of  banks.  These  clusters  are  to  be  corded  to- 
gether, as  it  were,  and  tied  to  their  nearest  branch.  The 
branches,  about  fifteen  in  number,  are  then  to  be  gathered  up 
and  roped  to  the  main  association,  that  is,  the  National  Re- 
serve, at  Washington.  The  amendment  I  offer  would  not  dis- 
turb the  method  of  electing  the  directors  of  the  local  associa- 
tions and  branches.  In  order  to  refresh  your  memory  I  will 
briefly  describe  this  method,  taking  a  local  association  for  ex- 
ample. In  each  local  association  the  number  of  directors  is  to 
be  determined  by  the  by-laws  of  the  local  association,  but  the 
method  of  election  is  to  be  uniform  throughout  the  country. 
There  will  be  two  classes  of  votes  used  in  the  election  of  the 
board.  The  first  is  the  solid  vote  of  individual  banks  as  units, 
designated  the  unit  vote.  The  second  is  the  vote  by  banks  as 
proportionate  owners  of  stock  in  the  National  Reserve  Associa- 


tion,  designated  the  share  ownership  vote.  Three-fifths  of  the 
directors  of  the  local  associations  are  elected  by  the  individual 
bank  vote  and  two-fifths  by  the  share  ownership  vote.  The 
purpose  of  this  division  is  to  place  the  control  with  the  in- 
dividual banks  of  each  locality,  irrespective  of  their  size  and 
wealth. 

The  number  of  directors  of  each  branch  will  conform  to 
the  number  of  local  associations  which  compose  the  branch,  but 
the  method  of  election  is  similar  to  that  described  above,  the 
result  being  that  the  control  will  be  wisely  kept  so  far  as  pos- 
sible in  the  hands  of  the  individual  banks,  regardless  of  their 
size  and  wealth. 

We  are  now  ready  to  consider  the  election  of  the  board  of 
governors  of  the  National  Reserve  or  Bank  of  Banks  at  Wash- 
ington. 

Under  the  Aldrich  plan  the  method  of  election  of  this 
board,  to  all  intents  and  purposes,  is  identical  with  that  of  the 
election  of  the  directors  of  the  local  associations  and  branches. 
Now,  gentlemen,  I  should  like  your  keen  attention,  for  just 
here  I  break  away  from  the  Aldrich  plan.  And  with  all  due 
respect  to  the  Senator  and  with  every  intention  to  do  him  jus- 
tice, we  must  admit  that  through  the  process  of  elimination 
and  amendment  the  plan  has  become  something  so  different 
from  that  contemplated  by  Senator  Aldrich  that  regardless  of 
our  politics  we  shall  call  it,  as  we  hope  it  will  be  called  in 
history,  the  Monetary  Plan  of  the  American  people  enacted 
into  law  by  the  sixty-third  Congress. 

I  propose  that  this  main  body,  in  whose  hands  we  Ameri- 
can people  must  place  the  financial  destiny  of  our  nation,  shall 
not  be  elected  by  the  bankers  nor  by  any  special  interest,  but 
shall  be  singled  out  for  that  great  honor  and  service  by  the 
President  of  the  United  States.  My  purpose  is  to  adopt  the 
method  of  procedure  of  the  appointment  of  the  Justices  of  the 
Supreme  Court,  who,  as  we  know,  are  appointed  for  life  by  the 
President,  subject  to  confirmation  by  the  Senate.  I  would 
make  one  qualification,  that  the  President  shall  appoint  one- 
half  of  the  board  from  the  eastern  section  of  the  country,  and 
one-half  from  the  western,  the  zones  to  be  divided  by  a  line  run- 
ning north  and  south  through  the  centre  of  population,  which 
line  of  demarkation  tends  to  move  further  and  further  west 
as  the  country  develops. 

I  propose  that  this  board — the  Court  of  Finance — shall 
be  reduced  from  the  unwieldy  number  of  forty-five,  as  recom- 


mended  under  the  Monetary  Plan,  to  fourteen.  Of  this  num- 
ber six  shall  be  practical  bankers,  one  of  whom  shall  be  ap- 
pointed to  act  as  Governor  General,  six  shall  be  appointed  from 
the  industrial,  commercial,  farming  and  other  interests,  and 
two  shall  be  academic  students  of  banking.  There  shall  also 
be  as  ex-officio  members,  the  Secretary  of  the  Treasury,  the 
Secretary  of  Commerce  and  Labor  and  the  Comptroller  of  the 
Currency,  making  seventeen  in  all.  With  the  exception  of  the 
ex-officio  members,  these  men  shall  devote  themselves  for  life, 
to  the  exclusion  of  all  other  interests,  through  the  work  of  the 
National  Reserve,  to  the  service  of  the  nation. 

It  would  be  outside  my  province  to  suggest  the  proper 
compensation  for  the  members  of  the  Court,  my  idea  being  that 
compensation  should  come  from  the  Government  and  be  com- 
mensurate with  services  rendered.  Inasmuch  as  members  of  the 
Court  cannot  be  stockholders  in  the  National  Reserve — as  only 
banks  are  eligible — I  propose  a  scheme  somewhat  similar  to 
that  in  vogue  in  Germany,  whereby  there  shall  be  a  stock- 
holders' committee  of  five,  with  whom  the  Court  shall  consult 
from  time  to  time. 

It  has  been  suggested  that  the  appointing  power  be  placed 
in  the  hands  of  the  President,  the  Comptroller  of  the  Currency, 
the  Secretary  of  the  Treasury,  and  the  Secretary  of  Commerce 
and  Labor  jointly.  This  method  would  mean  divided  re- 
spiomsibility,  the  thing  of  all  things  I  wish  to  avoid.  It  is 
through  the  grave  responsibility  that  we  place  upon  the  shoul- 
ders of  one  man — a  responsibility  so  enormous  that  he  is  bound 
to  invest  with  it  the  man  he  appoints — that  I  hope  to  secure  the 
service  desired.  The  ablest  financier  of  this  generation,  J.  P. 
Morgan,  appointed  for  life  a  governor  of  the  National  Re- 
serve by  the  President  of  the  United  States,  subject  to  con- 
firmation by  the  Senate,  is  a  very  different  man  from  J.  P. 
Morgan  elected  to  that  post  by  the  bankers. 

Let  us  now  consider  what  objections  will  be  raised.  I 
presume  you  have  many  to  offer.  I  will  mention  two.  First 
and  foremost,  it  will  be  said  that  in  giving  this  power  to  the 
President  we  are  bringing  politics  into  banking.  Upon  this 
point  I  have  but  one  thing  to  say.  If,  to  guard  our  constitu- 
tional interests,  we  can  trust  the  members  of  the  Supreme  Court 
of  law  to  appointment  by  the  President,  subject  to  confirma- 
tion by  the  Senate,  why  can  we  not,  to  protect  our  financial 
interests,  entrust  to  him,  with  the  same  safeguard,  the  appoint- 
ment of  the  members  of  the  Court  of  Finance? 

—  6  — 


A  second  objection  may  be  this:  How  are  we  to  persuade 
our  busy  business  men  to  serve? 

If  lawyers  can  be  found  unselfish  enough,  disinterested 
enough,  to  sacrifice  their  desire  for  wealth  to  the  service  of 
their  country,  is  it  possible  we  have  no  such  bankers?  I  can- 
not, will  not  believe  it.  Give  them  the  opportunity,  and  they 
will  covet  the  privilege. 

Now,  there  is  a  side  to  this  question  other  than  that  of 
patriotism.  It  is  that  of  self-preservation.  And  in  the  last 
analysis,  what  is  patriotism  but  self-preservation?  Not  long 
ago  a  man  said  to  me:  "Mr.  Rhoades,  if  you  gave  the  same 
amount  of  time  to  your  business  that  you  have  given  to  bank- 
ing reform,  you  would  be  a  richer  and  more  influential  man." 
What  was  my  answer? — "My  dear  sir,  I  have  not  forgotten  the 
panic  of  1907,  and  I  shall  do  everything  that  lies  within  my 
power  to  prevent  another — I'm  a  banker,  that's  my  duty.  But 
I  suffered  in  that  panic,  and  don't  you  forget  it — mentally,  yes, 
financially.  Disturbances  are  certain  to  occur,  but  I  draw  the 
line  at  the  cataclysms  of  the  past.  Of  what  use  is  it  to  me  to 
make  money  for  five,  ten,  fifteen  years,  and  then  through  no 
fault  of  mine  lose  it  over  night?  Of  what  use  is  it  to  a  man  to 
pile  up  money  all  his  life,  and  die,  and  have  his  children  suffer  ?" 
I  wish  I  could  make  our  busy  money-makers  see  that  side  of 
the  picture.  I  wish  I  had  the  eloquence  to  impress  upon  them 
the  danger  that  confronts  them.  I  am  not  preaching  patriot- 
ism now,  but  self-interest  and  preservation.  I  know  such  men 
are  shrewd  enough  to  sniff  a  panic  from  afar  and  run  to  cover 
before  lit  breaks,  but  not  one  of  them  has  nerve  enough  to 
care  to  see  another. 

We  hear  much  to-day  of  the  Money  Trust  and  of  control 
in  the  hands  of  the  few.  Control  is,  has  been,  and  always  will 
be  in  the  hands  of  a  few.  That  it  exists  was  demonstrated  in  the 
panic  of  1907,  when,  with  due  credit  to  the  clearing  houses 
and  to  the  Government,  the  financial  interests  of  the  country 
bowed  down  to  the  will  of  one  man.  And  let  us  thank  our 
lucky  stars  that  in  such  an  emergency  we  had  that  man.  This 
nation  little  appreciates  the  anxious  days  of  1907.  It  little 
knows  what  that  man  said  and  did  and  how  he  saved  the 
country  from  financial  conflagration,  which,  starting  in  New 
York  and  fueled  by  thoughtless  hands,  would  have  spread 
from  ocean  to  ocean.  But  I  believe  that  such  enormous  power, 
power  great  enough  to  stop  a  panic,  power  great  enough  to 
bring  one  on,  should  be  in  the  hands  of  men  who  have  no  private 


interests  to  promote,  but  solely   one  duty  to  perform — that 
of  service  to  the  people. 

The  Court  of  Finance,  which  I  propose,  is  the  supreme 
tribunal  to  whom  the  American  people  must  entrust  the  finan- 
cial destiny  of  their  nation.  These  are  the  men  who  must 
be  above  suspicion.  It  is  they  who  will  set  the  standard  of 
membership  in  the  National  Reserve,  with  authority  to  accept 
or  reject  an  application.  It  is  they  who  will  have  the  power 
to  expel.  It  is  they  who  will  control  the  discount  rate — raise  it 
to  check  speculation  in  the  East — raise  it  to  check  speculation 
in  the  West — raise  it  when  the  financial  seas  are  disturbed — 
lower  it  when  the  seas  are  calm.  The  question  before  us  is 
not  whether  the  financial  destiny  of  the  nation  shall  be  in  the 
hands  of  a  few,  but  who  shall  be  the  few,  and  how  they  shall 
be  made,  so  far  as  lies  within  our  power,  subservient  to  the  will 
of  all. 


o  __ 


UNIVERSITY  OF   6ALTFORN1 


l8Wwl50Dl 


Who   shall  control  o ir 


financial 


destiny? 


257209 


VC  23969 


UN 


.BRARY 


